Government Accounting Supervision and Analysts' Forecast Quality: Evidence from the Random Inspection of Accounting Information Quality by the Ministry of Finance
ZHENG Dengjin, SHI Jiaming, CHEN Jing
School of Accountancy, Central University of Finance and Economics; School of Business, Shantou University
Summary:
The Third Plenary Session of the 20th Central Committee of the Communist Party of China emphasized improving the Party and state's supervisory system and enhancing the quality of listed companies. As a key component of this system, government accounting supervision, which is led by the Ministry of Finance (MOF), aims to improve the quality of financial reporting. While previous studies have mostly focused on its direct effects on inspected firms, this paper explores whether such supervision can also strengthen the external monitoring role of financial intermediaries, particularly analysts. Analysts play a vital role in reallocating investor attention and enforcing market discipline by producing forecasts and research reports. High-quality analyst forecasts reflect stronger external governance and are aligned with efforts to improve forecast reliability. As the MOF has increasingly adopted random inspections of accounting information quality, a natural question arises: Can such inspections enhance analyst forecast quality and thereby foster supervisory synergy？ We propose that MOF random inspections improve analyst forecast quality through two mechanisms: (1) enhancing the accounting information quality of inspected firms, (2) increasing the precision of public information. The MOF, by conducting audits, enforcing accountability, and promoting corrective actions, helps standardize corporate reporting, strengthen internal controls, and reduce future regulatory risks. As an independent regulator, the MOF produces information that is credible, low-cost, and publicly accessible, thereby improving the overall information environment and reducing asymmetry to benefit analysts. Using a difference-in-differences design, we examine the impact of MOF inspections on analyst forecast quality. We manually collect inspection data from MOF announcements and supplement it with disclosures from stock exchanges and industry sources, identifying 303 listed firms subject to inspections from 2007 to 2023. After excluding firms with missing or abnormal data, we find that following public disclosure of inspection results, analyst forecast accuracy improves by 2.81%, optimism bias declines by 10.52%, and forecast dispersion decreases by 5.46%. These findings remain robust across multiple empirical checks. Mechanism tests confirm that the improvements in both financial reporting quality and public information precision mediate the observed effects. The impact is more pronounced among firms with more serious accounting violations, detailed inspection disclosures, strong rectification responses, non-state ownership, and lower audit quality. These results demonstrate that MOF inspections not only improve internal reporting but also activate the external oversight function of analysts, forming a coordinated supervisory effect. Policy implications are threefold. First, the MOF should continue to play a leading role in joint supervision, fostering coordination with analysts, auditors, and professional associations to build a collaborative oversight system. Second, local fiscal authorities should leverage big data and AI to identify high-risk firms for targeted inspections. Third, MOF inspection announcements should be standardized and enriched with detailed findings to enhance their transparency and usability. This study enriches our understanding of how government-led supervision can influence financial intermediaries and contribute to broader governance outcomes. Future research may explore additional outcomes, such as effects on earnings management or spillovers to other stakeholders, including suppliers and auditors.
郑登津, 史嘉铭, 陈菁. 政府财会监督与分析师预测质量——基于财政部会计信息质量随机检查的证据[J]. 金融研究, 2025, 545(11): 115-132.
ZHENG Dengjin, SHI Jiaming, CHEN Jing. Government Accounting Supervision and Analysts' Forecast Quality: Evidence from the Random Inspection of Accounting Information Quality by the Ministry of Finance. Journal of Financial Research, 2025, 545(11): 115-132.
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